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MBA,MCS,M.phil
Devry University
Jan-2008 - Jan-2011
MBA,MCS,M.Phil
Devry University
Feb-2000 - Jan-2004
Regional Manager
Abercrombie & Fitch.
Mar-2005 - Nov-2010
Regional Manager
Abercrombie & Fitch.
Jan-2005 - Jan-2008
Application of Options to Corporate Finance
1. It is said that the equity in a levered firm is like a call option on the underlying assets.
Explain what is meant by this statement.
2. Global Real Estate Partners, LTD., is undertaking a new project. If the project is successful, the value of the firm in a year will be $650 million, but if it turns out to be a failure, the firm will be worth only $250 million. The current value of the firm is $400 million. The firm has outstanding bonds due in a year with a face value of $300 million. The T-bill rate is 7 percent. What is the value of the equity? What is the value of the debt?
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